WEBVTT - Surveillance: Fed Hawkishness with Dudley 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Farrell and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:29.440 and of course on the Bloomberg Terminal. We are going 0:00:29.480 --> 0:00:32.400 to stop the show right now. John Farrell, Lisa Brammitts, 0:00:32.440 --> 0:00:34.519 and myself, We welcome all of you on radio and 0:00:34.560 --> 0:00:38.360 TV to maybe the first great discussion of the year. 0:00:38.479 --> 0:00:41.480 William Dudley is not the normal economist. Yes, his work 0:00:41.479 --> 0:00:44.320 at Goldman Sachs out of Berkeley, but far more his 0:00:44.400 --> 0:00:48.080 tenure at the New York Federal Reserve, and he has 0:00:48.120 --> 0:00:52.120 been very overt in writing not weekly but pretty much 0:00:52.360 --> 0:00:56.760 twice monthly for Bloomberg Opinion, and today he issues without 0:00:56.840 --> 0:01:02.640 question his most scathing essay on where our Central Bank is? Bill? 0:01:02.760 --> 0:01:05.840 What's it like to write with that language of a 0:01:05.920 --> 0:01:11.480 remarkable and surreal FED economics? Are you getting criticism from 0:01:11.560 --> 0:01:16.479 inside the Fed? I'm sure it doesn't make people they're happy, 0:01:16.560 --> 0:01:18.240 But the reality is I gotta call it like I 0:01:18.280 --> 0:01:19.959 see it, and what I see right now is a 0:01:19.959 --> 0:01:23.520 Federal Reserve that has a very benign forecast relative to 0:01:23.520 --> 0:01:26.120 what's actually happening on inflation. If you look at their 0:01:26.160 --> 0:01:29.360 forecast that they published at the December fone C meeting, 0:01:29.680 --> 0:01:32.200 they have inflation melting away to two point one percent 0:01:32.240 --> 0:01:36.120 in four even though they don't take monetary policy to 0:01:36.160 --> 0:01:38.679 a tight setting. The end of two thousand and twenty four, 0:01:38.720 --> 0:01:41.440 the Federal fundrais two point one percent below what they 0:01:41.440 --> 0:01:44.679 think is neutral. So how does the inflation magically disappear 0:01:44.720 --> 0:01:48.720 of the fedusors not? That's the question I want to 0:01:48.800 --> 0:01:53.880 raise in this piece, Bill Dudley. Alan Greenspan at least 0:01:54.040 --> 0:01:57.360 talking about the measurement and measured and the idea of 0:01:57.400 --> 0:02:01.200 a graduation a step by step approach. Alan Blinder, in 0:02:01.240 --> 0:02:04.680 an essay in two thousand five said, the Greenspan standard 0:02:05.120 --> 0:02:08.320 is suspect. Are we going back to Arthur Burns Burns 0:02:08.320 --> 0:02:11.080 in the pipe smoke, where we're gonna lose quarter point 0:02:11.160 --> 0:02:15.160 measured and start to see some real jumps. I think 0:02:15.200 --> 0:02:18.080 they're gonna go fairly slow at first, but because they 0:02:18.080 --> 0:02:20.320 think that the inflation pressures that we're seeing right now 0:02:20.320 --> 0:02:22.240 are going to subside as we go through the first 0:02:22.240 --> 0:02:25.160 half of the year. But the real new information is 0:02:25.160 --> 0:02:27.760 the tightness of the labor market and the fact that 0:02:27.760 --> 0:02:30.680 that tightness of the labor market is resulting in higher wages, 0:02:31.000 --> 0:02:34.480 wages above what's consistent with two percent inflation. So I 0:02:34.480 --> 0:02:37.400 think even if the initial impulsive inflation turns out to 0:02:37.400 --> 0:02:39.919 be transitory, they now have a problem because the labor 0:02:39.960 --> 0:02:44.160 markets sufficiently tight that wages are going to continue to accelerate. 0:02:44.520 --> 0:02:47.359 Bill In your piece, you reiterate your call for three 0:02:47.360 --> 0:02:50.840 to four percent as the potential and a rate for 0:02:50.919 --> 0:02:54.640 the Fed funds uh figure. I'm struck by the fact 0:02:54.760 --> 0:02:56.960 that you include the idea of an end rate for 0:02:57.080 --> 0:02:59.519 inflation at two and a half to three percent, which 0:02:59.560 --> 0:03:04.480 is actually a commonplace suggestion. What happens to risk markets 0:03:04.560 --> 0:03:07.440 if the Fed funds rate gets to three or four percent? 0:03:07.560 --> 0:03:11.679 Do you think that this economy can sustain that? Well? 0:03:11.680 --> 0:03:14.799 I think that's the fundamental question. Uh. In two thousand 0:03:14.800 --> 0:03:17.880 four two six, the economy is sustained the Fed taking 0:03:17.919 --> 0:03:19.880 the federal funds rate from one percent to five and 0:03:19.919 --> 0:03:23.440 a quarter. Yeah. In two thousands sixteen to nineteen, the 0:03:23.440 --> 0:03:26.000 economy didn't do so well with the Fed taking the 0:03:26.040 --> 0:03:27.760 federal funds rate to you know, he'll go a little 0:03:27.800 --> 0:03:30.359 bit over two percent. So I think that's the fundamental question. 0:03:30.400 --> 0:03:33.280 How does how do markets reactive Fed tightening? I think 0:03:33.320 --> 0:03:35.440 that right now, this idea though that the Fed is 0:03:35.880 --> 0:03:37.880 a small amount of tightening is going to cause markets 0:03:37.880 --> 0:03:39.960 to go down precipitously, and that's going to cause the 0:03:40.000 --> 0:03:42.680 FED to stop. I don't think that's the most likely outcome. 0:03:43.080 --> 0:03:45.400 If you think the inflation subsiding at two and a 0:03:45.440 --> 0:03:48.160 half to three percent would result in what could be 0:03:48.240 --> 0:03:50.880 a crippling FED funds rate, that are you saying that 0:03:50.920 --> 0:03:53.560 we need an inflation rate below two and a half 0:03:53.600 --> 0:03:56.840 percent to have an economy that is sustainable over the 0:03:56.840 --> 0:04:00.160 next decade. I don't think a three or four sent 0:04:00.200 --> 0:04:02.400 fiddle funds rate is crippling in any way. It's only 0:04:03.160 --> 0:04:06.560 unusually high relative to the last ten years. It's actually 0:04:06.640 --> 0:04:09.120 a pretty low relative to the last thirty or forty years. 0:04:09.400 --> 0:04:11.560 So I think the economic can do just fine with 0:04:11.640 --> 0:04:14.280 the federal funds rate in that range. I think when 0:04:14.360 --> 0:04:17.680 markets are really uh mis pricing is the fact that 0:04:17.720 --> 0:04:19.599 the FET is actually gonna have to move to take 0:04:19.680 --> 0:04:22.400 Madre policy setting. At some point the FED has turned 0:04:22.440 --> 0:04:24.760 more hawkish in the very near term, So a lot 0:04:24.839 --> 0:04:27.200 more hikes are being priced in in two thousand and 0:04:27.279 --> 0:04:30.719 twenty two. But the terminal fiddle funds rate the markets 0:04:30.720 --> 0:04:33.160 expecting it's still very low, only around two percent or so. 0:04:33.640 --> 0:04:36.279 But what's important here, and I think to summarize the message, 0:04:36.920 --> 0:04:39.080 you think for inflation to come lower, the feed needs 0:04:39.120 --> 0:04:41.920 to engineer trying to financial conditions. But I'm trying to 0:04:41.920 --> 0:04:43.800 want to stand from from your standpoint, where do you 0:04:43.839 --> 0:04:47.160 think that tightness begins? Where do you think it is 0:04:47.320 --> 0:04:49.040 one and a half, two, two and a half, What 0:04:49.160 --> 0:04:50.960 does it start to become restrictive? And where we can 0:04:51.000 --> 0:04:54.720 sit here and say the fet is now tightening. I 0:04:54.720 --> 0:04:56.880 think it's when the market start to price in more 0:04:56.960 --> 0:04:59.400 tightening than what they've breaks in at this point in time. 0:04:59.440 --> 0:05:01.719 I mean, it's the fact it's the fat just delivers 0:05:01.760 --> 0:05:03.960 what's priced in today. I don't think markets reacting very 0:05:04.000 --> 0:05:06.080 much because it's already priced in. So the feder reserve 0:05:06.200 --> 0:05:09.160 essentially has to go further than what the market anticipates. 0:05:09.560 --> 0:05:12.160 The markets to react. Uh, I think what will happen 0:05:12.240 --> 0:05:14.640 is the first boules will go out further. Uh, you know, 0:05:14.640 --> 0:05:16.479 we'll probably see boules in the two and a half 0:05:16.520 --> 0:05:19.679 three percent range. And as once we have higher tenure 0:05:19.720 --> 0:05:21.479 treasury no yields, that will start to weigh on the 0:05:21.480 --> 0:05:23.800 stock market a little bit more and other you know, 0:05:24.160 --> 0:05:27.200 you know, risk assets like say cryptocurrencies for example. But 0:05:27.279 --> 0:05:28.960 what you just said, though, the original piece of this 0:05:29.120 --> 0:05:31.359 is that you think when that happens, the ft doesn't 0:05:31.360 --> 0:05:34.720 back off. It's not the old playbook. Well, the ft 0:05:34.720 --> 0:05:36.080 has to do his job at the end of the day. 0:05:36.080 --> 0:05:38.080 I mean, if you if you try to defer the 0:05:38.120 --> 0:05:40.840 fight against inflation, all you do is get more inflation. 0:05:40.960 --> 0:05:43.000 So it's not like, you know, trying to be a 0:05:43.120 --> 0:05:45.320 nice guy gets you to a better price. We sort 0:05:45.320 --> 0:05:48.240 of saw that mistake in the early nineties seventies. So 0:05:48.279 --> 0:05:49.839 I think the Federals ave at the end of the day, 0:05:49.839 --> 0:05:52.120 will do his job. I think it's just slow. I 0:05:52.160 --> 0:05:55.760 think to realize right now the consequences of the tight 0:05:55.839 --> 0:05:59.640 labor market, which they've engineered at this point built totally. 0:05:59.680 --> 0:06:02.320 I want to go back to Dudley McKelvey, Goldman Sex. 0:06:02.440 --> 0:06:04.640 There's not a moment to lose. That's what I hear 0:06:04.640 --> 0:06:07.440 in your essay this morning. It's like, Okay, guys, let's 0:06:07.480 --> 0:06:11.039 get it going. The Taylor rule is described on the 0:06:11.080 --> 0:06:14.600 Bloomberg is stunning. It's something you and I never would 0:06:14.600 --> 0:06:18.279 have envisioned. John Taylor Stanford never would have envisioned where 0:06:18.320 --> 0:06:22.480 we are. Which moves quicker the Taylor rule coming down 0:06:22.520 --> 0:06:25.280 with all of us moving parts, or does the FED 0:06:25.400 --> 0:06:28.800 move up at a greater speed. Well, I don't think 0:06:28.800 --> 0:06:31.080 the Taylor rule is really that relevant to what the 0:06:31.080 --> 0:06:33.160 Fed is doing right now. I mean, if you listen 0:06:33.240 --> 0:06:36.400 to Cheer Polo, he talks about the importance of financial conditions, 0:06:36.839 --> 0:06:38.760 and I think that that's the key issue. The financial 0:06:38.800 --> 0:06:42.760 conditions today are extremely accommodative. To slow the economy down, 0:06:42.760 --> 0:06:45.880 the Fed needs to make financial conditions less accommodative. How 0:06:45.880 --> 0:06:47.880 do they do that? They raised short term rates. They 0:06:47.960 --> 0:06:51.360 raised short term rates more and faster than what markets expect. Bill, 0:06:51.400 --> 0:06:53.960 How does balance sheet reduction play into this as well? 0:06:54.080 --> 0:06:57.400 From your standpoint, Well, it's interesting that that there seems 0:06:57.400 --> 0:06:59.800 to be a growing sentiment that the balance sheet reduction 0:06:59.880 --> 0:07:02.640 is gonna happen sooner than last time, not just in time, 0:07:02.680 --> 0:07:04.920 but also in terms of the level of interest rates. 0:07:04.960 --> 0:07:06.480 Where the Fed is going to start the balance sheet 0:07:06.480 --> 0:07:10.080 normalization process very daily last week talked about getting going, 0:07:10.120 --> 0:07:12.480 you know, after a couple of rate hikes. I find 0:07:12.520 --> 0:07:15.000 that a little bit surprising given that the Fed. Fed 0:07:15.080 --> 0:07:18.040 officials have also said that they want the federal fund 0:07:18.120 --> 0:07:20.800 rate to be the primary tool of entary policy. Well, 0:07:20.800 --> 0:07:22.120 if you want the federal fund rate to be the 0:07:22.160 --> 0:07:24.400 primary tool of monetary policy, you need to get the 0:07:24.400 --> 0:07:27.160 federal fund rate up so it can actually react to 0:07:27.200 --> 0:07:29.520 adverse shocks in the economy, so you can push it 0:07:29.520 --> 0:07:32.080 back down. I think the case for being a little 0:07:32.080 --> 0:07:34.280 bit more patient with the balance SHE is still pretty strong. 0:07:34.600 --> 0:07:38.000 But it certainly looks like, judging from Fed officials commentary, 0:07:38.000 --> 0:07:39.760 that they're gonna go a little bit faster this time, 0:07:39.800 --> 0:07:42.280 not just in time, but also in terms of what 0:07:42.400 --> 0:07:44.680 level of interest rates we have to get to before 0:07:44.680 --> 0:07:46.840 they start to normalize the balance SHE. What's your sense 0:07:46.920 --> 0:07:51.280 of how much they should raise rates this year. I 0:07:51.320 --> 0:07:53.840 think they should go faster than what's priced into the market. 0:07:53.880 --> 0:07:55.560 I mean, obviously it's going to depend a bit on 0:07:55.680 --> 0:07:59.360 how the economy evolves, but my my best guess is 0:08:00.080 --> 0:08:01.720 that they need to do at least four or five 0:08:01.840 --> 0:08:04.120 rate hikes this year, and it wouldn't strike me at 0:08:04.120 --> 0:08:06.240 all if we if we get into an every meeting 0:08:06.320 --> 0:08:08.680 kind of cycle at some point. But what went wrong 0:08:08.960 --> 0:08:12.760 for this feder reserve. Let's finish that. What went wrong? Well, 0:08:12.800 --> 0:08:15.240 I think there are essentially four mistakes that were made. 0:08:15.320 --> 0:08:18.200 Number One, the way they operationalized the two percent average 0:08:18.240 --> 0:08:20.400 inflation targeting machine by saying that they're not going to 0:08:20.480 --> 0:08:23.040 even begin to lift off until they satisfied the goals 0:08:23.040 --> 0:08:25.600 of inflation at two percent, expected to be above two 0:08:25.640 --> 0:08:28.520 percent in the future, and at full employment. So that 0:08:28.560 --> 0:08:31.640 means the starting point for monetary policy lift off is 0:08:31.840 --> 0:08:34.920 economy is already overheating. Number Two, I think they were 0:08:34.960 --> 0:08:37.360 wrong about the labor market. I think they were surprised 0:08:37.400 --> 0:08:40.600 by how fast the labor market tightened. Participation rate has 0:08:40.640 --> 0:08:43.439 not come back to the to the degree that they 0:08:43.440 --> 0:08:48.000 were expecting. Third, they were surprised I think about inflation. Inflation, 0:08:48.200 --> 0:08:51.800 the transitory story hasn't played out very well. Uh it's 0:08:51.960 --> 0:08:54.120 I think a lot of the inflation pressures we're seeing 0:08:54.160 --> 0:08:58.400 our transitory, but that it's lasting longer, for a lot longer, 0:08:58.440 --> 0:09:01.559 at a lot higher rate than they anticipated. And then finally, 0:09:01.600 --> 0:09:03.360 I think they were a little bit too concerned about 0:09:03.480 --> 0:09:05.680 worrying about a papered Hendrew. So I think they were 0:09:05.720 --> 0:09:08.239 a little bit too gentle in terms of their communication 0:09:08.280 --> 0:09:10.120 to financial markets because they were worried that was going 0:09:10.160 --> 0:09:12.520 to provoke usself off in the bond market. And I 0:09:12.520 --> 0:09:14.960 think in the fact, the problem right now is that 0:09:14.960 --> 0:09:18.360 the markets aren't taking them seriously enough. Bill, just wonderful. 0:09:18.400 --> 0:09:20.839 You've been wanted about this for more than six months. 0:09:21.000 --> 0:09:23.800 Bill Duntly a Bloomberg opinion and of course the former 0:09:24.000 --> 0:09:31.320 president of the New York Fed. We need to kick 0:09:31.360 --> 0:09:33.400 things off in this equity market with Lori Canvassin of 0:09:33.440 --> 0:09:36.679 the head of US equity strategy at NBC Capital Markets. Laurie, 0:09:36.760 --> 0:09:38.480 you came into twenty two and said it would be 0:09:38.480 --> 0:09:40.920 a story of two halves. The first half of this 0:09:41.000 --> 0:09:43.839 equity market would look different to the second half. Laurie, 0:09:44.120 --> 0:09:46.199 start with what you expected and what you're seeing in 0:09:46.280 --> 0:09:49.560 the only part of twenty two. So look, well, great 0:09:49.559 --> 0:09:51.440 to be here as always, But look, I think last 0:09:51.480 --> 0:09:53.319 week we saw a lot of things we'd expecting to 0:09:53.320 --> 0:09:56.079 see unfold in the first half unfold with a certain 0:09:56.080 --> 0:09:58.559 ferocity that surprised even us. So we thought that the 0:09:58.559 --> 0:09:59.959 first half of the year was going to be the 0:10:00.040 --> 0:10:02.720 find by another big hurrah. We called it the last 0:10:02.760 --> 0:10:05.120 hurra on the value trade, so things like financials and 0:10:05.280 --> 0:10:07.880 energy fline. We certainly didn't expect to see energy of 0:10:08.000 --> 0:10:10.320 ten percent on a week, but we did think that 0:10:10.360 --> 0:10:12.680 we'd see this big move because you typically do see 0:10:12.760 --> 0:10:15.880 strong value leadership before first FED rate hikes and when 0:10:15.880 --> 0:10:18.640 the economy is running hot or above average. And what's 0:10:18.679 --> 0:10:20.760 interesting John to me is that with all these changes 0:10:20.760 --> 0:10:23.960 on rate hike use, we're still seeing an economics community 0:10:23.960 --> 0:10:26.480 that's looking for very, very strong growth this year. So 0:10:26.520 --> 0:10:29.600 that narrative is still intact. We think eventually this market 0:10:29.600 --> 0:10:32.360 will shift back towards growth. Um. But we've still got 0:10:32.360 --> 0:10:35.400 some woodchee chopped there. The valuations haven't corrected. There's still 0:10:35.440 --> 0:10:37.320 some time to that March lift off. If we end 0:10:37.400 --> 0:10:39.640 up getting it then um, and it'll be quite some 0:10:39.679 --> 0:10:42.199 time before markets start digesting a slow down in growth, 0:10:42.200 --> 0:10:44.640 which is what's penciled in as a risk for three. 0:10:44.960 --> 0:10:46.840 So I think we've still got to let this process 0:10:46.960 --> 0:10:49.800 play out. This is a repricing. It's painful. Um, it's 0:10:49.800 --> 0:10:51.920 got a little bit more ways to go. You're killing me. 0:10:52.040 --> 0:10:55.840 Lorio in the Tao is painful, Lorie, good morning. I 0:10:55.880 --> 0:10:58.680 want to talk about the most important research piece of 0:10:58.679 --> 0:11:03.440 the weekend, which was Bloomberg's Mark German's fabulous essay on 0:11:03.559 --> 0:11:06.640 Apple and would Apple go into fintech? And I want 0:11:06.640 --> 0:11:09.520 to use that as an overlay to year world, which 0:11:09.559 --> 0:11:14.160 is will corporations adapt given rising rates? And the answer is, 0:11:14.640 --> 0:11:19.720 you know what, corporations? Will corporations can adapt to this scenario? 0:11:20.080 --> 0:11:23.680 Is that true? I think that we have seen, going 0:11:23.760 --> 0:11:26.880 all the way back to when the China tariffs really 0:11:26.920 --> 0:11:30.000 came into view, there's always this fear in markets that 0:11:30.040 --> 0:11:32.760 whatever big issue comes out, that it's going to cause 0:11:33.040 --> 0:11:35.200 a growth stare that companies are going to be able 0:11:35.240 --> 0:11:38.760 to navigate. But time and time against whether it's the pandemic, 0:11:38.800 --> 0:11:41.760 whether it's supply chains, whether it's the tariffs, companies have 0:11:41.880 --> 0:11:44.439 been able to manage around, and you know, I think 0:11:44.480 --> 0:11:48.120 it's hard to bet against that adaptability of corporate America 0:11:48.200 --> 0:11:50.760 going forward, Lori. At the same time, you did say 0:11:50.840 --> 0:11:52.680 and a lot of people do expect some of the 0:11:52.720 --> 0:11:56.160 pain to continue. I'm wondering where, in particular, always really 0:11:56.200 --> 0:11:58.719 struck by Sundial Capital coming out and saying roughly four 0:11:59.040 --> 0:12:01.880 out of ten nast companies have seen their share price 0:12:01.920 --> 0:12:05.160 cut in half from their cut more than from the 0:12:05.160 --> 0:12:07.720 fifty two week highs. I mean there's been a complete 0:12:07.760 --> 0:12:12.480 recalibration of certain tech valuations. LOOKA, we updated all of 0:12:12.480 --> 0:12:15.520 our valuation models on Friday. I didn't quite catch Friday's closed, 0:12:15.559 --> 0:12:17.680 but I did catch Thursday's close. And whether you're looking 0:12:17.760 --> 0:12:21.160 growth versus value tech relative to the broader market, we 0:12:21.200 --> 0:12:23.600 still have big valuations on that side of the market. 0:12:23.760 --> 0:12:26.040 I do expect we'll be able to buy those those 0:12:26.120 --> 0:12:28.440 areas back before the year is up, but we're simply 0:12:28.440 --> 0:12:30.640 not there yet. And frankly, Lisa, I was surprised that 0:12:30.679 --> 0:12:33.280 we didn't see more improvement on my tech valuation model. 0:12:33.480 --> 0:12:35.880 It's not as expense, it's not the most expensive sector 0:12:35.880 --> 0:12:38.520 in the market industrials is, but it's still ranking second. 0:12:38.559 --> 0:12:40.960 It's still ranking pretty extremes. So that's really telling me 0:12:41.040 --> 0:12:44.040 this free pricing still has a lot of room to go, Laurie, 0:12:44.040 --> 0:12:45.880 when you're thinking about FED right high, So let's finish 0:12:45.880 --> 0:12:49.120 finish here. What's the difference between help us distinguished between 0:12:49.120 --> 0:12:52.360 a rotation and broad based de risking that we could 0:12:52.360 --> 0:12:53.839 see off the back of the FED coals light to 0:12:53.840 --> 0:12:56.960 this year. So what here's the thing is that people 0:12:57.240 --> 0:13:00.400 don't want to sell out of their equities if we're 0:13:00.440 --> 0:13:03.199 not on the precipice of a growth scare or a recession. 0:13:03.240 --> 0:13:05.560 And that's the real difference here. Um. If you go 0:13:05.600 --> 0:13:08.880 back to when quantitative tightening was spooking markets, it was 0:13:08.960 --> 0:13:11.240 also against the backdrop of the trade war which was 0:13:11.360 --> 0:13:14.120 just getting started, and there were real recession fears that 0:13:14.160 --> 0:13:16.320 were starting to build. We are hopefully at the tail 0:13:16.360 --> 0:13:18.880 end of this pandemic, in recovery mode with a hot 0:13:18.880 --> 0:13:21.439 economy that no one's really arguing against for the moment. 0:13:21.760 --> 0:13:25.040 If you see that hot economy start to be questioned, 0:13:25.440 --> 0:13:27.360 that's when markets are really going to have a problem 0:13:27.360 --> 0:13:29.560 and you're going to run the risk of really seeing 0:13:29.559 --> 0:13:32.280 the substantial decline. But we're not there yet. Fantastic work. 0:13:32.360 --> 0:13:34.600 Laurie as always going to hear from the Lori Canvassin 0:13:34.640 --> 0:13:43.280 and that of obviously Capital Markets a Tommy conversation and 0:13:43.360 --> 0:13:44.839 one of those companies that needs to adapt to the 0:13:44.840 --> 0:13:47.960 world around us, it's FISA and output Bola, the chairman 0:13:48.000 --> 0:13:51.000 and CEO of FISER on place to say join us. Now, 0:13:51.160 --> 0:13:53.440 don't de fantastic to catch up with you, sir. A 0:13:53.520 --> 0:13:56.439 series of announcements from your company led by the four 0:13:56.520 --> 0:14:00.600 year research collaboration with Being Therapeutics, expanding m R and 0:14:00.640 --> 0:14:02.959 a effort here it's pretty clear to see. I want 0:14:03.000 --> 0:14:05.440 to understand though. My first thing to think seeing the 0:14:05.480 --> 0:14:11.360 news why the partnerships instead of straight acquisitions. I think 0:14:11.520 --> 0:14:17.520 sometimes being a good partner provides better results than if 0:14:17.679 --> 0:14:20.800 you own a company. And right now we want to 0:14:20.800 --> 0:14:25.200 place multiple bets and collaborations, and we have proven that 0:14:25.240 --> 0:14:28.520 this works very well with buy on day. So I 0:14:28.560 --> 0:14:30.560 don't say that we would then you would not see 0:14:30.600 --> 0:14:35.880 also acquisitions from our side in this front, but right now, 0:14:35.920 --> 0:14:39.680 in these specific areas, we felt that partnerships will give 0:14:39.760 --> 0:14:44.760 us exactly what we want without dedicating amounts of capital 0:14:44.800 --> 0:14:47.680 that would be needed if we wanted to require the companies. Well, 0:14:47.680 --> 0:14:49.040 that's what I wanted to ask, That's what I wanted 0:14:49.080 --> 0:14:51.400 to go to next. What does that mean for capital 0:14:51.440 --> 0:14:54.080 annocation elsewhere? What kind of doors does it open up 0:14:54.480 --> 0:14:56.880 if the strategy elsewhere as a series of bets and 0:14:56.920 --> 0:15:01.040 a series of partnerships. Clear early this is one of 0:15:01.080 --> 0:15:04.560 the top priorities that the visor and myself personally are 0:15:04.560 --> 0:15:06.600 having for for this year. I wouldn't say is the 0:15:06.680 --> 0:15:09.200 number one because the number one it is to stay 0:15:09.200 --> 0:15:11.280 ahead of the virus, to stay ahead of COVID. This 0:15:11.360 --> 0:15:13.120 is what the company needs to do because this is 0:15:13.120 --> 0:15:17.240 what the world needs. But clearly number two priority it 0:15:17.400 --> 0:15:20.600 is to invest a lot of capital that it is 0:15:20.640 --> 0:15:24.640 accumulated either through the normal course of business or through COVID, 0:15:25.240 --> 0:15:30.000 and that needs to be an investment on science. We 0:15:30.160 --> 0:15:33.560 believe that we have the machine right now, the developed 0:15:33.560 --> 0:15:38.440 clinical development machine, the manufacturing machine, the commercial machines, all 0:15:38.480 --> 0:15:42.640 these platforms are waiting for a new science, highly break 0:15:42.680 --> 0:15:46.040 through science to come in and produce allusions for for 0:15:46.040 --> 0:15:48.920 for humankind, and this is where the capital will go. Well, 0:15:48.960 --> 0:15:51.360 let's talk about the platform getting the most attention right now, 0:15:51.920 --> 0:15:55.160 m A and I. It's been met with hope, confusion, 0:15:55.600 --> 0:15:58.880 and to some degree skepticism. Dr. I'm trying to understand 0:15:58.880 --> 0:16:02.160 from from your standpoint, communicate to people the hope around 0:16:02.160 --> 0:16:04.720 this when we keep getting told we need another shot. 0:16:04.760 --> 0:16:06.440 If it's so good, why do you need a second, 0:16:06.640 --> 0:16:11.200 a third, and a fourth. Yes. First of all, let 0:16:11.200 --> 0:16:13.000 me say what I think about MMR and EMER and 0:16:13.080 --> 0:16:15.240 it is not the holy Grail. But it is a 0:16:15.320 --> 0:16:18.480 very very powerful technology. It is a very powerful technology 0:16:18.600 --> 0:16:23.560 that has produced dramatic results, positive impact, and we are 0:16:23.600 --> 0:16:28.040 only scratching the surface. So our strategy and our vision 0:16:28.080 --> 0:16:30.840 it is to harness the power of this technology to 0:16:30.960 --> 0:16:34.080 multiple other areas. The first area that is the self 0:16:34.480 --> 0:16:37.840 evidence and the lowest hanging fruit. It is other vaccines 0:16:37.880 --> 0:16:42.400 for other infectious disease and this is something that we 0:16:42.480 --> 0:16:48.600 are doing mainly in partnership with BioNTech. We just expanded 0:16:48.680 --> 0:16:51.040 with a third target. You said, why if it is 0:16:51.080 --> 0:16:55.840 not good, it's not producing longer lasting results. It's not 0:16:56.040 --> 0:16:58.360 something that's related with MMR and A is something related 0:16:58.400 --> 0:17:02.480 with the virus. As you most probably know or if 0:17:02.520 --> 0:17:06.320 you ask experts, the natural infection with this virus also 0:17:06.359 --> 0:17:10.560 doesn't produce big immunity. In fact, the natural infection in 0:17:10.640 --> 0:17:13.600 many times it produces half the time that you can 0:17:13.600 --> 0:17:18.400 get in terms of how long you're protected then the vaccines. 0:17:18.920 --> 0:17:21.280 So it's not right to say that the mRNA doesn't 0:17:21.600 --> 0:17:25.320 create durable protection. It is this virus that is very 0:17:25.320 --> 0:17:29.480 difficult to tackle and it takes constantly. That's why we're 0:17:29.520 --> 0:17:31.680 happy that we have mRNA. But it's not the only 0:17:31.880 --> 0:17:36.359 area that mRNA can help cancer. It is another area 0:17:36.400 --> 0:17:39.679 and we're having significant efforts right now in the world 0:17:39.960 --> 0:17:47.720 and internally. And another area that we announced today partnership 0:17:47.720 --> 0:17:51.399 would be are there are diseases. These are diseases mainly 0:17:51.560 --> 0:17:56.080 that uh they have as a cause a mistake in 0:17:56.240 --> 0:17:59.199 your DNA and genetic mistakes. Something is wrong with your 0:17:59.280 --> 0:18:02.680 DNA and there's a result you have a disease. What 0:18:02.800 --> 0:18:07.159 we try to do with the base in editing technology, 0:18:07.240 --> 0:18:12.560 which being is a master it is to targets that 0:18:12.600 --> 0:18:14.880 will be delivered through a marina that will be able 0:18:14.920 --> 0:18:18.800 to correct this mistake. There are several the in editing technologies. 0:18:18.880 --> 0:18:21.520 We did a lot of new diligence and we thought 0:18:21.560 --> 0:18:26.560 that the base is how scope technology base is the best. 0:18:26.760 --> 0:18:29.040 And also did a lot of new diligence about companies 0:18:29.040 --> 0:18:31.120 and the best one was BIM and this is why 0:18:31.640 --> 0:18:35.119 we did this partnership. We're having some other deals that 0:18:35.160 --> 0:18:37.760 we're announced today that will help us to improve one 0:18:37.760 --> 0:18:42.320 further the ACUITOUS, which is given us license for ten 0:18:42.560 --> 0:18:46.520 different targets in the l m P target ellen P. 0:18:46.640 --> 0:18:49.400 It is the lipid nonparticles that are used to transfer 0:18:49.760 --> 0:18:52.439 the RNA. And the last, but not least, it is 0:18:52.480 --> 0:18:56.120 the Contex what Condex technology is all about. They are 0:18:57.119 --> 0:19:03.240 uh creating DNA instead of biological manufacturing, which means that 0:19:03.320 --> 0:19:05.679 you have virus to make it. It's just in happy 0:19:06.160 --> 0:19:09.240 bottom line. What does this mean? Instead of having a 0:19:09.240 --> 0:19:13.240 process that takes a very important process for the production 0:19:13.320 --> 0:19:16.560 of our amor and a vaccine, instead of one month, 0:19:16.840 --> 0:19:18.920 you can take it down to a couple of days. 0:19:19.520 --> 0:19:22.639 This is very very important because imagine, for example, you 0:19:22.680 --> 0:19:25.400 can have a new variant right now, if we were 0:19:25.440 --> 0:19:29.439 successful theoretically, instead of creating a new variant vaccine in 0:19:30.480 --> 0:19:32.840 ninety days one d days to do it in two 0:19:32.880 --> 0:19:36.159 months rather than three months. Instead of being able to 0:19:36.200 --> 0:19:40.080 create a flu vaccine that you are six months or 0:19:40.119 --> 0:19:42.560 five months ahead of the target, now you're three or 0:19:42.600 --> 0:19:46.520 four months before the season and you have better months. 0:19:46.600 --> 0:19:49.280 Very important technology that will allow us to solidify our 0:19:49.359 --> 0:19:52.119 leadership in this area and more important, to deliver to 0:19:52.160 --> 0:19:55.160 the world what they're expecting from us, better health care 0:19:55.160 --> 0:19:57.639 solutions based on this technology. To you run it down o'clock. 0:19:57.640 --> 0:20:00.639 So I've got a champion. I apologize this from not Djokovic. 0:20:00.840 --> 0:20:02.600 In the last couple of moments a story. I'm sure 0:20:02.600 --> 0:20:04.840 that you've been following. I'm pleased and grateful that the 0:20:04.920 --> 0:20:07.040 judge I of have a term my visa cancelation. Despite 0:20:07.080 --> 0:20:09.120 all that has happened, I want to stay and try 0:20:09.160 --> 0:20:11.520 to compete in the Australian open As you know, doctor, 0:20:11.560 --> 0:20:15.439 he got that exemption by having a previous infection. You 0:20:15.480 --> 0:20:17.359 said something quite important. I want to want to stand 0:20:17.359 --> 0:20:22.359 from your standpoint whether a previous infection provides similar protection 0:20:23.520 --> 0:20:27.560 equivalent to a vaccine. First of all, I'm a fan 0:20:27.640 --> 0:20:31.480 of Djokovitch, but I can't even go to this dispute 0:20:31.480 --> 0:20:33.920 if he has the documentation or not. This is something 0:20:33.960 --> 0:20:36.679 between him and the authorities and their doctor, so that's it. 0:20:37.920 --> 0:20:41.439 I think previous infections, they are in general, not in 0:20:41.480 --> 0:20:45.920 this case. In general, they are protecting against the infections 0:20:45.960 --> 0:20:48.520